Financial markets

Demography

Germany miscalculates

GERMAN economic policy is often portrayed in the rest of the world as hard-headed. Hard-headed but wrong, many would say, in its insistence on austerity that undermines growth. But just to prove the critics wrong, the new German coalition policy veers off in a completely soft-headed direction. The SPD has managed to secure agreement on a reduction in the retirement age from 67 to 63 for those who have worked 45 years.

The country's demographic problems are pretty well-known, but for anyone in doubt see this report from the ministry of the interior. The overall population is currently 81 million but

Germany’s population will decline to 65-70 million by 2060. That would be as much as 17 million fewer residents, or a decline of 15% to 21% within 50 years.

Within that population, the balance will shift significantly. At the moment, those aged over 65 are around 20% of the total population.

In 2030, the group of persons aged 65 and older will account for 29% of the total population; in 2060, every third person (34%) will be at least 65 years old.

Meanwhile

The size of the working-age population began to decline already ten years ago. This decline has so far been compensated by an increase in the number of women and older workers and by a reduction in unemployment in recent years. The working-age population (20 to 64) in Germany is currently 49.8 million. Starting in 2015, this group is expected to noticeably decline in size. This process will further accelerate starting in 2020, when the baby-boom generation begins to retire. In 2030, the working-age population will probably have 6.3 million fewer persons than in 2010. This is assuming annual net migration of 200,000 persons starting in 2020. If fewer people immigrate to Germany, then the working-age population will decline even more.

Economic growth is essentially driven by the number of workers and the abiility to make those workers operate more efficiently, i.e. productivity. On the latter front, the news is not encouraging. A recent report from Allianz found that

the increase in labor productivity per person in work was still averaging 1.0% a year between 1995 and 2005, the average annual increase in the period between 2005 and 2012 was only 0.5%. The slowdown in the pace of labor productivity growth, measured per hour worked, is even more pronounced. The average growth rate of 1.6% between 1995 and 2005 had slipped back to 0.9% between 2005 and 2012.

Yes, there is an argument that German productivity growth has slowed because it has been successful in holding down unemployment. But the data are still pretty stark. If the German working population falls by 12.6% between 2015 and 2030, then even a return to the old 1% annual productivity growth rate will mean the economy will barely grow at all.

Making good use of your older workers is thus paramount. The German interior ministry report recognised this, saying that

The potential of older workers has long been underestimated. They have a widerange of skills, abilities and experience.

Since 1960, the OECD calculates that the average German male aged 65 has gained 6.6 years of life expectancy and the average female 5.4 years It makes sense for some of those years to be devoted to work, not retirement. Reducing the retirement age makes no sense at all.

UPDATE: A few people have commented that the 45-year rule makes this "fair" - people who start working at age 18 should be able to retire earlier than those who start at 21. I think this fundamentally misunderstands pay-as-you-go pension schemes; what you get out does not relate to what you put in. Broadly speaking, poorer workers get a better proportionate return on their money. Now one might say that the life expectancy of poorer workers is not as good, but is this the right way to compensate? If you are physically unable to work beyond 63, then of course you should get disability benefits, but this applies to people aged 53 or 23.

Second issue is the incenctive structure. some peoplle like to start earning money at 18 rather than live on a student's meagre income; the student takes the gamble that the three of four years in college will boost his or her income when they leave. If a society says that, not only must you wait until 21 or 22 to start earning but you must retire later than school-leavers, how will that encourage young people to go to college? This, at a time, when the west needs all the skilled workers it can get.

The key point is that this a policy designed to reduce the workforce at a time when Germany faces a shortfall of workers.

Thirtysomething , high school graduates - The profile of the unemployed in Greece who refuse to work in Germany.

To profile of the unemployed addressed to Employment Agencies in Greece in an effort to find a job or to secure the benefit resulting from the unemployment, was released by the Agency recently.

As noted by kathimerini.gr a processing of data on unemployment in July profile of the unemployed in Greece addressed to the Agency as follows :

-They are mainly over 30 years ( the 62.65 % registered in the Employment Service is from 30 to 54 years)
-Greeks ( by 93.61 % )
-Women in the vast majority ( 59.27 % )
-Graduates of secondary education
-Enrolled in the Employment Service for less than a year
-They do not get allowance ( allowance received only 15 % of the registered unemployed )
-Young people see no need to register at the Employment Agency .

It based on the data of the Employment Agency to rampant unemployment in the age group 30-54 years and that young people under 30 to touch 26.99 % , however, and based on the data released by the Hellenic Statistical Authority for June and recorded 58.85 youth unemployment (under 24 years) which means that only one in two unemployed young people find some serious reason to enroll in the Employment Service.

As seen from the data sent Thursday to the House Labour Minister Yiannis Vroutsis reply to a parliamentary question , IKA , OGA and OAEE lost 474,384 members in the last eight years.

Economist keep criticize population decline. Here, in Germany. Earlier, in South Korea. Etc.
Why don't Economist support sustainable economical development, not just economical development. Aren't it is too important for the overpopulated planet now? Why human kind do not pay attention on the matter until it might be too late?
I believe world should stop base its economical stability on population growth, other means must be found - as they definitely could be found in the era of fast developing technologies - to sustain economical wealth of the countries.

Wrong question. Are people there to support economies, or are economies there for the people?

"... more workers provide for more consumers who demand the output of more workers and so on . . . ad infinitum."

Ad infinitum? Exponential grwoth on a finite planet? I shudder at the dystopia, even if we could pack endless numbers of people on the planet and feed them. Gone all privacy, the natural environment, everything non-human.

Seems more sensible to take per capita prosperity as the aim, and strive for a sustainable, stable population.

63-45=18.Most likely this means no college and blue collar more 'manual labour' type employment.It is hard to do this type of work beyond 60 and most of the automation replaces this type of work first so jobs are hard to come by even for young workers.

The other retirement age for people with education doing more cerebral work would probably be increased to over 70 gradually.

Ie they must have worked from say 18 to 63 years of ago without stop. (does time off unemployed count or not? I would presume not?)
Also I presume the current retirement age of 67 is for retirement with full benefits, I expect there are a fair few early retirees already?

If you are then eligible to retire at 63, does delaying retirement until later, say 65 or 67 or more confer many or any benefits?

I wouldn't disagree with Germany's demographic challenge, but I also wonder how big a difference this change will make?

Work is healthy, especially in a service based economy. Most people will have greater social interaction, mental and physical stimulation, and emotional satisfaction from a paying job than they will in retirement.
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It is widely known that keeping physically, mentally, and socially active, is important for happiness, good health and a long life. The easiest way to keep in an active state is to keep working.
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Retirement would ideally be a gradual process that takes years to complete. If possible, one should go from working long hard hours, to a regular 40 hour week, then to start adding extra vacations, then to drop to 4 days a week, then three, and finally none. This is a process that should start in one's 50s and end in one's 70s. For a lot of professionals, or hourly workers, this should be easily achievable, and desirable for employers that want to retain workers.

45 years of labor is a long enough time for people who desire to retire. Instead, how about an alternative to encourage longer employment (and presumably higher consumption), e.g., a lowered income tax for those eligible but choose to continue to work, perhaps with a cap on the break? It would enable people to transition gradually while continuing to contribute and allow room for young people to enter the workforce.

Not sure Detroit can be used as an analogy for every other location in the world.
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The city was highly concentrated on the auto industry, which didn't scale down easily. The trend was exaggerated by the willingness to move production elsewhere by companies, as well as foreign competitors enjoying government support in home markets.
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Then there were the racial tensions that probably hindered regional solutions. Think 1968 and subsequent white flight.
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Then there was that big city town hall kind of corruption that one often saw in the northeast.
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So is mono-industrial over concentration, racial tensions and corruption going to occur everywhere, in the same way? I doubt it….
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And there are probably some more problems unique to Detroit too that I overlooked (like maybe violent crime? who knows?)….?

This is just one more example of how tired old socialist thinking ruins otherwise productive economies. Merkel had to swallow some strange policy pills in order to construct her latest coalition and the minimum wage plus early retirement was symptomatic of the same kind of thinking that led the French to mandate a 35-hour working week. But why stop there? Why not, as the French propose, tax those who still have incomes at a 100% marginal rate and tax businesses likewise at 100% of profits in order to fund retirement at 35 for everyone else? After all, it worked brilliantly for the CCCP. Now that another economically illiterate Pope has, predictably, come out against free markets, we can all rally behind yet another self-destructive fantasy.
Certainly the regulation of markets is not working very well in the USA and elsewhere. The rich, as will always happen when governments are suborned by bribery and corruption, have aggregated the vast majority of productivity gains. But the problem is not market economics: it is political structure. If politicians were precluded from buying votes and if the wealthy were precluded from buying politicians, we'd see a much more effective free market in which wealth is created and shared by those who participate in its creation. Destroying markets destroys wealth - very quickly, as it turns out (North Korea, anyone? This is, after all, where the Pope is leading us). Political reform is therefore the issue, not worn-out half-baked pseudo-Marxist clap-trap.
We must always remember that people who believe in imaginary invisible friends are not the most reliable guides to action in the real world.

I think the guy above exageratted things a bit: with France's or UK's slightly higher birth rates (and their continuous flow of immigrants which, however, remain a minor part of those countries' population growth), the long-term trends are population stabilization, and not "ad infinitum" growth. So, yes, in a certain way I think the "future" in demographic terms is with France and the UK, not with Germany or Italy, whose birth rates are abnormally low, i.e extremely low not only to stabilize the population but even to allow only a small decline in the population towards their previous, pre-peak level, which would probably the ideal economic and social situation (that is, the country's population in the end would be around the same as it already is now). But that's not the case. Countries like Germany, Italy or Japan will lose 20% or 30% of their population, and that is including immigration (if we count only the "indigenous" population, the loss will probably be around 1/3). That will surely have tremendous consequences for those societies.

I think most countries should try to find something like France or the US nowadays, a demographic scenario which allows moderate growth now and suggests very low growth and eventual stabilization (not counting immigration) in the next decades.

"But the problem is not market economics: it is political structure. If politicians were precluded from buying votes and if the wealthy were precluded from buying politicians, we'd see a much more effective free market"

I wonder if it is possible to separate economic systems so neatly from political systems. Loosly regulated markets tend to produce large inequalities in wealth, and with wealth comes power and influence, some of which will be used to influence political decisions. Regulation might prevent that, but regulation is a dirty word in free market dogmatism. So the corruption may be inherent in the system.

No more housing booms? What happened after the collapse of the last one? I'll tell you -- mass unemployment.

Working into your 70s? I am doing that right now -- and my body is starting to protest. I exercise like crazy, don't smoke, stay active -- and the last few months have been nothing but cat-scans, blood tests, surgery and pills. Your future will not differ.

Healthy oldies with ample time to pursue their ideas? You wish! Sickness sets in for all of us -- it has for nearly every one of my peers -- and few of us spend our time in philosophical seminars.

Volunteers who pursue their ideals? Is that what your elderly relatives are doing right now? Or, are they just trying to make it through each day and care for one another?

More trees? See Detroit.

"Quality of Life?" The key to that is money. Less money = lousy quality of life. Don't believe this? Fine -- then advocate for more poverty and perhaps we'll all be happier.

Once again the question arises: how can a country have a prosperous economy without people?

There is a European Fertile Crescent that begins in England today, sweeps across the Channel and through France and then broaches north into Scandinavia. Recent estimates project that the British population may reach 80 million at about the same time that the German population has shrunk to 65 million. The French population grows apace because of liberal-minded pro-family government programs such as child-care. The future prosperity of these countries seem assured as more workers provide for more consumers who demand the output of more workers and so on . . . ad infinitum.

China? Japan? Italy? Germany? All have discouraged population growth either as a matter of explicit government policy (China) or as a consequence of implicitly anti-family policies -- such as abortion or the promiscuous availability of contraception.

There has been an "anti-kid" bias in the popular imagination for more than a generation, worldwide. Phony concerns about "the environment" and solipsistic attitudes toward "personal privacy" have stifled population growth. Now, it appears that the outcome of this bias will differentiate between those societies that grow and prosper and those that wither and become sclerotic.

The article points this out a little, but one of the ironic twists about worker productivity is that it usually increases during financial crisis. This is because worker productivity is simply the amount of revenue (not profits) of a firm divided by the number of employees. So with the large amounts of layoffs that occurred throughout the developed world without a similar fall in revenues (or a growth in revenues after an initial fall), the crisis actually increased labor productivity. That is why the article tries to address the argument that Germany's lower worker productivity was caused by its lower unemployment, which it was. Basically Germany is trading a smaller pie more equally divided versus a larger pie that is more unequal (like that of the US). But if the pie keeps shrinking, then that will lead to problems for all. But that whole issue is one of the greatest economic issues for all developed countries, at least in my opinion.

Nonsense. The population of the globe is 3x what it was when I was born and that population has never lived better nor been better fed. I've heard these apocalyptic scenarios for decades and they have all been false. China used to be the poorest spot on the globe and was so as recently as sixty years ago (my uncle, who served there during the war, said the poverty was unbelievable.) Now, China is the second largest economy in the world.

All privacy gone? Then, why are you on the Internet -- which chews up and spits out privacy?

The natural environment? Doing pretty well, actually. The air and water are far cleaner in the US and Europe than 60-70 years ago. The change in air-quality, especially, is startling. You probably aren't old enough to remember what smog was like in LA and NYC in the 1950s.

I have watched for seventy years as the planet has seen steady population growth and the reasons for this are enhanced food supplies and better medical care. How are either of these things reasons for lamentation? We aren't running out of oil . . . or food . . .or space . . . or, for that matter, much of anything. Yet, the jeremiads from the environmental Left continue.